Overview of Colorado Taxes
Colorado is home to Rocky Mountain National Park, upscale ski resorts and a flat income tax rate of 4.63%. Aside from state and federal taxes, Centennial State residents who live in Aurora, Denver or Greenwood Village must also pay local taxes.
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- Our Tax Expert
Jennifer Mansfield, CPA Tax
Jennifer Mansfield, CPA, JD/LLM-Tax, is a Certified Public Accountant with more than 30 years of experience providing tax advice. SmartAsset’s tax expert has a degree in Accounting and Business/Management from the University of Wyoming, as well as both a Masters in Tax Laws and a Juris Doctorate from Georgetown University Law Center. Jennifer has mostly worked in public accounting firms, including Ernst & Young and Deloitte. She is passionate about helping provide people and businesses with valuable accounting and tax advice to allow them to prosper financially. Jennifer lives in Arizona and was recently named to the Greater Tucson Leadership Program.
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Colorado Paycheck Calculator
Colorado Paycheck Quick Facts
- Colorado income tax rate: 4.63%
- Median household income: $68,811 (U.S. Census Bureau)
- Number of cities that have local income taxes: 3
How Your Colorado Paycheck Works
If you are a Colorado resident, your employer will withhold taxes from every paycheck you get. These taxes go to the IRS to pay for your federal income taxes and FICA taxes. FICA taxes go toward Social Security and Medicare. The amount withheld for federal taxes depends on the information you’ve filled out on your Form W-4. Remember that you need to fill out a new W-4 when you start a new job or if you want to make changes (for example, after having a child or getting married).
In December 2017, President Trump signed a new tax plan into law. This plan led to updated withholding amounts for federal income taxes. Additionally, the IRS has made changes to the W-4 for 2020.
The new form no longer asks for total allowances; but it requires you to enter dollar amounts for income tax credits, non-wage income, itemized and other deductions and total annual taxable wages. The 2020 W-4 also features a five-step process that allows filers to enter personal information, claim dependents and indicate any additional jobs or income. For the most part, these updates affect those adjusting their withholdings or changing jobs. Employees hired before 2020 aren’t required to complete the new form, but employees hired after Jan. 1, 2020 must fill it out. The tax return you file in 2021 will contain any adjustments you make to your withholdings now.
One big factor affecting your paycheck taxes is your marital status and whether you decide to file jointly or separately from your spouse. Filing as head of household will also change things. Any Coloradans who are common-law couples also have the option to file jointly.
Claiming dependents might affect your pay as well. Naturally, the frequency of your pay will also affect the size of your paycheck. The more frequently you get paid, the smaller each paycheck will be.
Coloradans' income is taxed at a flat rate of 4.63% of their taxable income, regardless of your income bracket or marital status.
If you work in Aurora, Denver or Greenwood Village, you will also have to pay local taxes. These taxes are also flat rates. If you work in Aurora, $2 is taken out of your pay every month if you earn over $250. In Denver, you’ll pay $5.75 monthly if you make more than $500. Lastly, employers in Greenwood Village will take out $4 every month if you earn more than $250.
Colorado residents who work in another state should be aware of the credit for tax paid to another state. If you live in Colorado and your income is taxable in another state, you may qualify for a credit for taxes paid to the other state.
If you’re in the military on active duty, you might not have state taxes withheld. To qualify you will need to make sure that you establish Colorado as your state of legal residence. You can do that by registering to vote in Colorado or purchasing property there. Once you do that, any money you get from being in active service doesn’t count as taxable income when figuring out Colorado income taxes (meaning you won’t be taxed in Colorado for that amount).
For those looking to move to Colorado, brushing up on the state’s income taxes is important, but you’ll also want to learn about what it’s like getting a mortgage in Colorado. Our mortgage guide has the important information to make sure you’re up to speed on what the mortgage market is like in the Centennial State.
A financial advisor in Colorado can help you understand how taxes fit into your overall financial goals. Financial advisors can also help with investing and financial plans, including retirement, homeownership, insurance and more, to make sure you are preparing for the future.
How You Can Affect Your Colorado Paycheck
You need to fill out a new W-4 whenever you start a new job, but you can also fill one out at any time. If you do regularly owe money when you pay your taxes, consider asking your employer to withhold more taxes from your paychecks. When filling out a new W-4, simply write in the dollar amount you want withheld. For example, if you want $60 taken out of each paycheck on top of the dollar amounts you've entered for the tax year, then all you need to do is write that amount on the correct line on the W-4. This means smaller paychecks, but think of it as paying more of your taxes over time so that you don’t have to pay a huge lump sum every year. Using a paycheck calculator like ours will help you see how your paycheck changes when you withhold more or less money.
Finally, one more way you can tweak your paycheck is to modify your pre-tax contributions. These lessen your taxable income and may even push you into a lower tax bracket. If your employer offers such benefits, think about putting more into things like a Health Savings Account, a commuter program or other types of flexible spending accounts. You might also want to increase how much you’re putting into your employer-sponsored retirement account, like your 401(k) or 403(b).
Most Paycheck Friendly Places
SmartAsset's interactive map highlights the most paycheck friendly counties across the U.S. Zoom between states and the national map to see data points for each region, or look specifically at one of the four ranking factors in our analysis: Semi-Monthly Paycheck, Purchasing Power, Unemployment Rate, and Income Growth.
Methodology To find the most paycheck friendly places for counties across the country, we considered four factors: semi-monthly paycheck, purchasing power, unemployment rate and income growth.
First, we calculated the semi-monthly paycheck for a single individual with two personal allowances. We applied relevant deductions and exemptions before calculating income tax withholding. To better compare withholding across counties, we assumed a $50,000 annual income. We then indexed the paycheck amount for each county to reflect the counties with the lowest withholding burden, or greatest take-home pay.
We then created a purchasing power index for each county. This reflects the counties with the highest ratio of household income to cost of living. We also created an unemployment index that shows the counties with the lowest rate of unemployment. For income growth, we calculated the annual growth in median income throughout a five year period for each county and then indexed the results.
Finally, we calculated the weighted average of the indices to yield an overall paycheck friendliness score. We used a one-half weighting for semi-monthly paycheck and a one-sixth weighting for purchasing power, unemployment rate and income growth. We indexed the final number, so higher values reflect the most paycheck friendly places.
Sources: SmartAsset, government websites, US Census Bureau 2018 American Community Survey, MIT Living Wage Study, Bureau of Labor Statistics
